The Incredible Shrinking Illinois: High Taxes And Low Economic Freedom Have Led To State Crisis

Illinois has been losing population for four years. The state’s out-migration crisis is so bad that Illinois has dropped from the fifth-largest to the sixth-largest state, falling behind Pennsylvania. Since 2010, the Land of Lincoln lost a whopping 640,000 people on net to out-migration. The state is shrinking so rapidly that it’s at risk of losing a House seat.

Illinois’s people problem is nothing to shrug off, because it indicates the state economy is on pace to continue its decline. And if nothing changes, people will just keep leaving.

So what’s wrong with Illinois?

Terrible economic policies.

Illinois ranks near the bottom in terms of economic freedom compared with the rest of the country, according to the Fraser Institute’s recent Economic Freedom of North America, or EFNA, report, released in partnership with the Illinois Policy Institute. This report ranks states based on an index of 10 variables related to government spending, taxes and labor market freedom. Only 12 states were ranked lower. Unsurprisingly, blue states California and New York ranked at the bottom of the economic freedom list.

Pennsylvania, which just overtook Illinois as the fifth-largest state in the U.S., ranks 18th on the index of economic freedom, compared with Illinois’ 35th place ranking.

While Illinois continues to shrink, states that rank near the top of the Fraser Institute’s economic freedom rankings are growing. Since the last recession ended in 2009, population in the 10 most-free states has grown 2.5 times faster than it has in the 10 least-free states. Employment and income have also grown faster in the freer states.

So why are economically free states growing while states such as Illinois are losing residents? One reason is that high levels of taxes, spending and regulation make it harder for entrepreneurs to succeed. When businesses can’t expand and hire new workers, it hurts everyone. Illinois’ lack of opportunity pushed nearly 100,000 people to drop out of the workforce in 2017 alone.

States that have seen the fastest economic growth, such as Texas and Florida, tend to have a common focus in their economic policies: low taxes (including low or no income taxes), a fiscally responsible approach to spending and a common-sense approach to regulation that makes it easier for entrepreneurs to be successful.

States that take the opposite approach, such as New York, California and Illinois, tend to see much less economic prosperity and many more moving trucks leaving the state for greener pastures.

If politicians in Illinois want their state’s residents to thrive, the path is clear. The first step: reduce the tax burden. Among its neighboring states, Illinoisans pay the largest share of their income in federal and state income and property taxes. Reducing property taxes should be a high priority – this tax costs many families more each year than their mortgage.

But to give Illinoisans the relief they need, the state of Illinois also needs to rein in the growth of spending. One place to start is the salaries and benefits of its state workers. In 2016, state government workers in Illinois earned 59 percent more than private sector workers on average. Illinois state workers are the highest paid in the nation, when adjusted for cost-of-living. One reason? Illinois gives government unions tremendous negotiating power, which drives up the cost of government.

Reducing excessive regulations would also help entrepreneurs be more successful, allowing them to in turn expand their businesses and hire more workers, rather than leaving the state or shrinking payrolls and laying off workers. Illinois lost a record $4.75 billion in adjusted gross income to other states in the 2015 tax year, up from $3.4 billion in the prior year. To stem the tide, Illinois needs to make major changes soon.

Taking the steps necessary to rank higher on measures of economic policies, such as the EFNA, is a winning strategy for states like Illinois. Increasing economic freedom means more prosperity, which means more jobs and more opportunity for Illinoisans.